Jacobs’ Profits Double Thanks to IIJA and Water Projects

Summary:

• Jacobs earned $216.5 million in Q2-2023, up 144% from last year.
• Revenue for the quarter increased by 7% to $4.08 billion due to critical infrastructure, including water, transportation, and sustainability projects.
• The company’s backlog also increased to $29 million, a 4.3% rise from last year.
• Jacobs announced plans to spin off its Critical Missions Solutions (CMS) business into an independent company. The CMS business provides consulting services to government agencies and represents about 35% of Jacobs’ Q2-2023 revenues.
• The separation should be completed in H2-2024.
• Jacobs will focus on critical infrastructure, advanced facilities, and sustainability projects while the CMS company will target government services, national security, nuclear remediation, and 5G technology work.
• CEO Bob Pragada expects significant opportunities for growth, particularly in water and environment, energy and advanced facilities construction, and transportation.

Details:

Industrial analyst Matt Arnold from Edward Jones said that the CMS business wasn’t as profitable as Jacobs’ other core divisions. Jacobs exited its energy, chemical, and resource business, which tended to be more cyclical and less profitable. Arnold believes that Jacobs’ increased focus on infrastructure, aerospace, cybersecurity, and technical building projects will lead to future growth and profitability for the company.

Jacobs’ CEO, Bob Pragada, said that the spinoff will allow both firms to thrive. “By separating CMS, we will streamline our business portfolio and transform Jacobs into a higher-growth, higher-margin company more closely aligned with key global mega trends and growth sectors.” Pragada added that “As an independent company, CMS will be better able to focus on its distinct strategy and operating needs, driving further momentum in its business.”

According to Jacobs, the separation should be completed in the second half of fiscal 2024. Going forward, Jacobs will focus on critical infrastructure, advanced facilities, and sustainability projects. The new CMS company will target government services, national security, nuclear remediation, and 5G technology work.

Pragada expects several opportunities for growth, particularly in water and environment, energy and advanced facilities construction, and transportation. Jacobs recently won a $500 million award for the Donald C. Tillman Advanced Water Purification Facility in Los Angeles. Pragada added that water projects, along with infrastructure work, continue to lead to pipeline growth.

Takeaways from earnings:

• Jacobs’ increased focus on critical infrastructure, advanced facilities, and sustainability projects bodes well for future growth and profitability, according to Arnold.
• Arnold believes Jacobs should benefit from a rise in infrastructure stimulus. In addition, management prioritizes growth in more attractive end-markets that offer faster growth and higher profitability.
• The separation of the CMS business “makes sense,” and will focus the company on its stronger assets, Arnold said. The remaining company, excluding CMS, will have solid positions in infrastructure consulting and advanced facility design.
• The intent of the spinoff is to focus Jacobs on its faster-growing and more profitable building and infrastructure business. In addition, the remaining business can benefit from the signed infrastructure stimulus.